Magazine article American Banker

Attorney Patents New Credit Structure for Airports

Magazine article American Banker

Attorney Patents New Credit Structure for Airports

Article excerpt

Byline: Audrey Dutton

Bond attorney and longtime market participant Linda Grant Williams has secured a patent on an alternative credit structure that is designed to lower interest rates on special facility bonds for airports.

In essence, the structure that Williams has patented would allow tax-exempt bonds sold for airport terminals to be rated on their underlying value - passenger demand - instead of on the value of the airlines that serve the terminals.

The patent, named "Process and Architecture for Structuring Facilities Revenue Bond Financing," was issued Nov. 23 by the U.S. Patent and Trademark Office. The structure, which is based on a method that has been used for sports arena financings, could be used for other transportation assets, according to patent documents. The assets could include seaports, roads, and railroads.

Under the patented structure, an airline or airlines would form a single-purpose entity for tax purposes and for protection against bankruptcy risk, then sublease the facility for airline use. The revenue bonds would be issued by the airport authority, but the bonds could be backed by the SPE's revenue. The structure also could be used for bond refinancings.

The structure would allow rating agencies to evaluate the bonds based on the underlying demand for the asset, Williams said. For example, analysts could rate airport bonds by considering the demand for use of a terminal, instead of viewing the bonds as an obligation of a single airline.

As a result, airline bankruptcies and mergers and overall credit problems would not have as much of an impact on bonds' interest rates, Williams said, predicting interest rates typically would be 200 to 300 basis points lower.

The structure was valued in 2008 at $49.5 million by Russell L. Parr, president of IPRA Inc. …

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